Rabobank Sees USD/JPY Drop as Fed Tightening Expectations Cool

Rabobank’s Senior FX Strategist Jane Foley notes that markets expect limited action from the Bank of Japan (BoJ) at its October meeting, with December now the focus for potential policy changes. Foley argues that recent BoJ Governor Kazuo Ueda’s remarks, while reaffirming the intention to raise interest rates, suggest a cautious approach due to Japan’s “moderately” growing economy. This has reduced expectations of consecutive rate hikes, though Foley maintains that markets have overestimated Federal Reserve tightening plans for next year.

Foley believes that if Fed rate hike expectations are scaled back, the USD/JPY pair could decline into 2027. Rabobank has set a three-month target for USD/JPY at 155.00. While the pair has risen since the September policy meeting, Foley warns that a return to levels near 160 could trigger further market intervention.